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Sunday, 18 November 2012

Vodafone Plc SWOT Analysis and Five Forces

Abstract

Aim: This essay aims to perform an analysis on the basis of integration of SWOT and Porter’s Five Forces frameworks. The key aim of this essay is to establish the reasons behind the success of Vodafone, which is ranked 3rd in FTSE100 Company ranking, and thereby represent the implications and recommendations.

Methodology: This paper is based on integration of the secondary research, which includes recent reports, books and journal articles.

Findings: The key findings indicate that Vodafone is a well – established global company with a highly successful internationalization strategy. This implies that Vodafone has a lot of opportunities to take advantage of, despite the recent economic adverse events.

1.0. Introduction

This paper aims to demonstrate an analytical essay on the company, which is FTSE100 Top 20 Company as of July, 2012. A chosen company for this report is Vodafone Group Plc, which is ranked third in FTSE100, with the market capitalization of $ 87.53 billion (Financial Times, 2012).

2.0. SWOT analysis

SWOT framework is utilized in order to evaluate the main strengths, weaknesses, opportunities and threats on a micro-level (Kotler and Armstrong, 2010)

2.1. Strengths

As the recent FTSE100 report demonstrates, Vodafone is ranked 3rd on the basis of market capitalization numbers. This suggests that Vodafone Company has a strong brand reputation in domestic (UK) and international markets. According to Brand Directory, (2011), Vodafone has increased the brand value by 6 % in 2011 (from $ 28,995 to $ 30,674 millions).

Vodafone has always followed an aggressive internationalization strategy, which has been supported by the recent investments in Australian and African markets (Brand Finance, 2011).

2.2. Weaknesses

Vodafone faces a tough competition in the domestic market from another mobile network leader – O2 and recently merged T-Mobile and Orange (BBC News, 2012). The rivalry is further intensified in the light of recently introduced high data excess charges by Vodafone (Guardian, 2011).

The primary emphasis is placed on domestic (UK) market, which in turn weakens Vodafone’s position in international markets (i.e. US)

2.3. Opportunities

The partnership between O2 and Vodafone may influence the enhancement of the certain services (4G services). This, in turn, would align with the recent trends in the technology area (BBC News, 2012).

Further aggressive expansion to the untapped markets (i.e. recent internationalization to Australia and Africa) may align well with the core strategy of Vodafone (Strategic Direction, 2002).

Constant increase in popularity of smartphones and tablets may also increase the revenue of Vodafone as a result of utilization of 3G data services (KPMG, 2012). Additionally, there is an opportunity for development of the new services and products that would align with the technological innovations.

2.4. Threats

New mobile market entrants and future strategic partnerships may become a threat to Vodafone.

Inability to satisfy the needs of the target markets, (i.e. students) may reduce the market share of Vodafone. This implies that there are a lot of international students, residing in UK whilst Vodafone tends to apply high charges for them, regardless the potential decrease of the demand for Vodafone services within this consumer group.

SWOT analysis has demonstrated that one of the main Vodafone’s problems is a tough competition and lack of focus on the presence in international markets versus domestic markets. In UK, one of the key threats is related to the company’s inability to meet consumer needs on the basis of service quality and price ratio. Additionally, some of the consumer groups are being disregarded (i.e. students).

3.0. Porter Five Forces

Porter’s Five Forces framework is utilized in order to evaluate the attractiveness of the particular industry on the basis of the measurement of the strengths of the following forces, namely power of buyers, power of suppliers, threat of new entrants, threat of substitutes and degree of rivalry (Kotler and Armstrong, 2010).

3.1. Power of Buyers

The power of buyers is low, due to the strong market presence in UK and internationally. Additionally, due to the complexity of the mobile market structure, products and services, it is difficult for buyers to implement backward integration. This suggests that the power of buyers is low.

3.2. Power of Suppliers

The power of suppliers is of medium strength. Vodafone has several main suppliers, with whom they tend to have long term relationships. Huawei is a one of Vodafone’s official suppliers since 2005 (Huawei Official Website, 2012). However, as the market research demonstrates, there are a lot of suppliers in the mobile market, which may substitute Huawei.

3.3. Threat of New Entrants

Threat of new entrants is low. The barriers for new entrants are relatively high due to the complexity of the mobile market structure and a need for a high degree of investments. Furthermore, given the current poor economic conditions, the risk of new mobile players’ entrance is decreased. It is also supported by the intense competition in UK mobile market, with such clear leaders as O2 and Vodafone (Independent, 2012).

3.4. Threat of Substitutes

Threat of substitutes is high. There are a lot of alternatives that may be utilized instead of the mobile phone, due to the rapid development of new technology, (Lane, 2010). The most popular are the landline phones and video conference. Additionally, VOIP services are quite popular now, due to the associated low costs of communication (i.e. Skype, Yahoo Messenger) (Tsai, Lo and Chou, 2009).

3.5. Degree of Rivalry

The degree of rivalry is high, since there are two mobile market leaders in UK, namely O2 and Vodafone. Additionally, the mobile companies tend to form the strategic alliances, as T-Mobile and Orange have done recently (BBC News, 2012). This, in turn, increases the competition.

The switching costs are low, especially on Pay as You Go basis, whereas the switching costs are more increased on a Pay Monthly contractual basis. It is further supported by the increased loyalty towards a particular mobile operator in case of the subscription to Pay Monthly contract.

The exit barriers are also high, due to the complexity of the mobile industry and its structure.

Porter’s Five Forces analysis has demonstrated that there are three forces with low and/or medium strength, which may be taken advantage of, namely power of buyers, power of suppliers and threat of new entrants.

4.0. Conclusion

It has been estimated as a result of SWOT analysis that Vodafone is a global, well-established competitive company with a lot of opportunities to take advantage. As a result of Porter’s Five Forces analysis, it is recommended for Vodafone to continue emerging into the new markets in order to align with the successful globalization strategy. Additionally, it is recommended to implement more personalized approach toward consumer groups. This implies that is advisable for Vodafone to establish the prices for the products that would be attractive for certain target groups in relation to their needs and profiles. This would increase the competitive advantage of Vodafone, thus differentiating this company in highly competitive UK market arena.

Huawei Official Website, (2012), Available from: http://www.huawei.com/en/ (Accessed on 25/07/2012)

Independent, (2012), “Vodafone and O2 to save ‘hundreds of millions of pounds’ by sharing networks”, Available from: http://www.independent.co.uk/news/business/news/vodafone-and-o2-to-save-hundreds-of-millions-of-pounds-by-sharing-networks-7827959.html (Accessed on 26/07/2012)